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Why is Healthcare so Expensive?

Time Magazine has just published its longest article ever, a 25,000 word piece by Steven Brill, entitled Bitter Pill: Why Medical Bills Are Killing Us. The article contains one example after another of outrageous medical bills being charged to people who are the least able to pay, either the indigent or the uninsured. Mr. Brill’s solution to this horrible mess is for the government, i.e. the bureaucracy now being expanded by the Affordable Care Act, to do a much better job of using its clout to control costs.

Mr. Goldhill’s proposal is to introduce true competition, not quasi competition dictated by over-burdensome bureaucratic rules, into the American healthcare system. In other words, let the marketplace figure out what works best by trial and error, rather than expecting even the brightest and most well-meaning experts to be able to figure it out a-priori. There would still be massive government sponsored programs, such as cradle-to-grave catastrophic insurance and mandatory health accounts, to provide universal care for all. But the myriad details would be left to the consumers and providers of healthcare to work out over time.

The healthcare crisis in the United States is not just about controlling the rapidly increasing costs of Medicare and Medicaid, as serious as this problem is. It is also about controlling the costs of private healthcare which is retarding the growth of prosperity for the entire middle class. Fundamentally we have two basic ways to proceed. We can either move toward a single payer government run program, like much the rest of the developed world, or we can set up a minimally controlled (to insure universal access) system where each of us has the primary responsibility for our own health.

2 thoughts on “Why is Healthcare so Expensive?”

What evidence do you have that the “myriad of details” left to consumers and providers would get worked out? I believe there is little or none.

Consider dental health care. Dental problems are well-known and quite predictable. Technology and/or procedures have changed little over the last several decades. 50% of Americans have no dental insurance and those that do are generally on a 100-80-50 plan where they pay a significant percentage of dental bills out of pocket. There is no Medicare for dental services.

Given the fact that all the pieces you say we need are in place, it would seem that this is an ideal test of your hypothesis that “the marketplace [will] figure out what works best by trial and error.” So how’s it worked out?

Not so great. Costs have outstripped inflation by nearly 30% between 2000 and 2010, and more and more people are just having to go without dental treatment, often for even very serious problems.

So despite having all the parameters you cite and decades to achieve it, the market has failed miserably to provide dental health services to the American public.

What makes you so sure the story will be different with any other health care? Sounds to me like your just hawking yet another plan that ignores the well-known, well-studied, well-documented, and well-experienced reality that health care is a classic case of market failure.

Any plan for providing health care that relies on markets simply Does Not Add Up!

You are correct that health care in the United States is a case of market failure. But the problem is that our own health care system has strayed too far from market principles. More specifically, health insurance isn’t really insurance. Rather it is an exceedingly inefficient payment mechanism for health care. As David Goldhill describes so well in his book referred to above, health insurers are giant intermediaries shifting money around between consumers, taxpayers and providers at a very high level of complexity and expense.
Singapore provides a free market success story for health care. It provides universal coverage for its citizens at a cost of only 4% of GDP compared to our broken system of rapidly rising costs already exceeding 18% of GDP. We can and must do better before we bankrupt ourselves!